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  • Journal of Finance

Fee Variation in Private Equity

By: Juliane Begenau and Emil N. Siriwardane
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    Abstract

    We study how investment fees vary within private-capital funds. Net-of-fee return clustering suggests that most funds have two tiers of fees, and we decompose differences across tiers into both management and performance-based fees. Managers of venture capital funds and those in high demand are less likely to use multiple fee schedules. Some investors consistently pay lower fees relative to others within their funds. Investor size, experience, and past performance explain some but not all of this effect, suggesting that unobserved traits like negotiation skill or bargaining power materially impact the fees that investors pay to access private markets.

    Keywords

    Pension Funds; Fee Dispersion; Search And Negotiation Frictions; Private Equity; Investment Funds

    Citation

    Begenau, Juliane, and Emil N. Siriwardane. "Fee Variation in Private Equity." Journal of Finance (forthcoming).

    Supplemental Information

    Internet Appendix
    In this appendix, we investigate other sources of within-fund return variation and discuss how they would impact our main conclusions. We then provide more detail about the contracting environment in private-market funds. We also present several supplementary results, including: (i) robustness tests using other unsupervised learning techniques to identify return clusters; (ii) whether net-of-fee returns clusters within funds are present using alternative measures of returns; (iii) an analysis of how commitment size determines assignment to management-fee tiers; (iv) tests showing that pension effects are predictable out-of-sample and exist with alternative measures of returns; and (v) an analysis of whether characteristic-adjusted pension effects are sensitive to how returns are measured.
    • SSRN

    About The Author

    Emil N. Siriwardane

    Finance
    →More Publications

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    • Pershing Square's Pandemic Trade Teaching Note Courseware By: Luis M. Viceira and Emil N. Siriwardane
    • OTC Intermediaries By: Andrea L. Eisfeldt, Bernard Herskovic, Sriram Rajan and Emil Siriwardane
    • Segmented Arbitrage By: Emil Siriwardane, Adi Sunderam and Jonathan L. Wallen
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